Finance a Pool Service Route
A Pool Service Route is Valuable
When someone wants to quit the pool service business, they don’t just hand it off to a young apprentice and send them on their way. They sell it. Pool service routes are valuable commodities. There are a variety of brokers that sell pool service businesses, some of the limited to one state or area and others are national in scope. For some people, it is the perfect way to buy their way into a new profession or to grow their existing pool business. You could also try to find a reliable employee and just handle the billing and some customer service aspect of it. For someone like me who had no interest in becoming a pool man or being directly involved in the pool business, you could still probably make money by becoming a hard money lender to other buyers.
In discussing financing, one pool route broker website said the following: “In most cases seller financing is not offered. Most new buyers use funds from savings, home equity loans, retirement accounts or friends and family to purchase a pool route.” I think it is unlikely that most buyers can get financing from a bank to purchase a pool service route. This is especially going to be the case if the purchase price is small (say $50,000) and the buyer has limited or no experience in the pool service business. For those buyers that don’t want to tap savings, retirement accounts, etc. (or don’t have the means to do so), you could put your money to work as the hard money lender for pool service routes. Basically, you would require the buyer to make a down payment and you would finance the remainder of the purchase price, using the pool service route as collateral. In the event that the buyer defaulted on the loan, you would take back the pool service route. You would probably have to hire someone service the pools for a period of time until you could line up another buyer.
Due Diligence When Making a Loan
There would need to be a substantial amount of due diligence prior to making this type of loan. Besides the obvious things like checking the buyer’s credit, checking references, work history, etc., I would want to make sure the buyer had the skills to maintain pools, repair pool equipment, etc. I would want to see that the buyer has decent interpersonal communication skills in order to maintain relationships with his customers. I would want to look at his truck and make sure it is dependable and he is capable of making the payments on it. I’d want to find out whether there is anything that would draw him out of town for an extended period of time, and what his plan is for vacations and holidays. I’d want to make sure that even though the loan would be made to an LLC, the buyer still would have to personally guarantee it. On the route itself, I would look at the customers’ payment histories, the geographic sprawl of the route, and whether there are any red flags that indicate the customer’s are not happy with the current pool man and might be likely to shop around for a new one. I’d want to make sure the price the buyer was paying was reasonable. I have seen that pool service routes sell for about 10-15 times the gross monthly service income (so a pool route that brings in $5,000 per month might sell for $50,000 to $75,000). I’d also probably require the buyer to have payments either sent directly to me or preferably use an online billing service or automatic draft in order to take the loan payment out first before the remaining income goes to the borrower. It would be understood and in writing that I would be allowed to continue to check in on the business throughout the term of the loan. Also, because the alternative to my loan would probably be credit card advances at 18+%, I would want to make sure the interest rate was high enough to compensate me for the risk. Hard money loan on real estate are often at 12-18%, sometimes with a front-end fee of 0-5% of the total loan; that would probably be a good starting point.
After the loan was made, there are several things I would continue to monitor. I might ride along with the borrower one day and check up on him to make sure he is doing the work. I would probably find out what homes are scheduled on what days and drive by to make sure his truck is parked there. I’d check in with him regularly to find out what issues he is dealing with. Maintaining the value of the collateral would be critical so I would make sure that the borrower was continue to service the pools on the route, and that if this ever stopped, I could find another pool man to handle the pools temporarily until I sold the route to someone else (hopefully it would never come to that). Becoming a lender for pool service routes is not something that I have personally tried, but it does think like an unusual but potentially profitable way to put your money to work.
